0
Comments »
Traders in the bond and currency markets are delivering a real-time report card on the European Union's nearly $1 trillion rescue package for debt-addled nations there. The grade so far is a C-minus. The euro continues to weaken against the dollar, as a record 48,000 negative bets were taken out against the euro in just the last three weeks, with shorts outpacing longs by four to one. Traders tell me the credit markets don't like it when governments vacuum up and then destroy dwindling capital by issuing more debt to cure debt, which is like drinking rot-gut whiskey to cure a hangover. The problem is it leaves the private sector scrambling for evaporating funds, as John Tamny of RealClearMarkets points out. The very same private sector so desperately needed to fuel economic growth worldwide, but which instead faces dangerously higher taxation and regulation. Pay close attention to how US government officials got on their red bat phones to jawbone the hawks in Europe into a massive bailout, which included softening up the once tough Jean Claude Trichet, head of the European Central Bank, praised the world over for being a modern-day Paul Volcker, the rare official who had the courage to say, "enough." Having reckless US elected officials pressure European bankers is like having people with rickety knees advise those with severe osteoporosis. Remember that US elected officials used the crisis of‘08 to make it socially acceptable to default on any loan. Wall Street traders tell me they don't like it when the bond vigilantes are the last guys to exact fiscal discipline on reckless governments. They say central banks do distort the bond markets by giving shelter to rotten bonds by buying them off of bank balance sheets, as the European Central Bank and the Federal Reserve have done. Instead of fiscal sanity, European governments are hiking taxes thinking they will raise tax revenues, sort of like Europe's version of "Project Runaway"- they should be racing in the opposite direction, toward pro growth, pro market, low tax policies. Toward fiscal health and stronger economies. Sadly, not the course the White House is taking. Witness the bond market's thumbs down reaction to Portugal's answer to austerity, whereby it hiked income and capital gains taxes. Portugal's bond yields spiked higher. Market sources are telling me they feel that elected officials are using tomorrow's market reaction and tomorrow's polls to address yesterday's structural problems that their type of thinking created. So ignore government officials who in their habitual self deception complain about the bond markets. Elected officials historically don't like it when bond markets discipline their reckless spending. Pay close attention to the market talk about how this whole idea of the old "European Stability and Growth Pact," initially aimed at limiting government budget deficits to 3%, was a Eurofiction all along. They also tell me that officials in Germany and France who decided five years ago to kill the European Commission's idea to strengthen national statistical agencies so as to better police endemic cheating in places like Greece should be fired. Yes shock and awe is turning into just plain shock on the streets in Germany as voters there grow angry that a prudent country is taking on the role of fiscal authority for a monetary union that has no political union, for a block of countries that spends faster than it is growing. A union where Germans were initially told that, in exchanging for giving up the maidenhood of the deutschemark, that all countries would love, honor and obey fiscal probity and the sanctity of the euro. Instead we now have to suffer through the factitious vigor of the self-actualizing street drama in Greece, where Greeks who clearly have lived in a cushy, fiscal make-believe land took to the streets in protests with "we do not recognize our debt" placards. Yes, protestors were right to point out government corruption, but not to ignore cradle to grave benefits in a world where credit spreads continue to lethally widen on debt issued by EU countries. Traders also tell me the debt market is pricing in potential backsliding on bailout commitments from German and French politicians the second they see their poll ratings drop. Hopefully now finally dawning on the minds of government officials is this reality: the euro crisis, or any currency crisis, won't be cured by the jet fuel of more debt and by jettisoning fiscal common sense. The reality is we are dealing with a structural problem created by a self-regarding neurosis that says, yes we can let reckless people drive, but we will do everything to stop them from going off the road, including spending prudent taxpayers' money to do so.
Elizabeth MacDonald is the stocks editor for Fox Business Network. She is recognized as one of the top prize-winning business journalists in the country, and has received 14 awards, including the top prize in business journalism, the Gerald Loeb Award for Distinguished Business Journalism, and the Newswomen's Club of New York Front Page Award for Excellence in Investigative Journalism.
Subscribe to Posts
May JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember
2010 200820092010
Advertise with us | Jobs at FOX Business Network | Internships at FBN
Terms of use. Privacy Statement. For FOXBusiness.com technical issues write to foxbusinessonline@foxbusiness.com; for all other feedback, write to feedback@foxbusiness.com.
Quotes delayed at least 15 minutes. Market Data provided by Interactive Data (Terms & Conditions). Powered and implemented by Interactive Data Managed Solutions. Company fundamental data provided by Morningstar. Earnings estimates data provided by Zacks. Mutual fund data provided by Lipper. Economic data provided by Econoday. Dow Jones & Company Terms & Conditions.
This material may not be published, broadcast, rewritten, or redistributed. © 2010 FOX News Network, LLC. All rights reserved.
Read Full Article »